Starting a franchise is a way to own a business by using a proven idea and an established brand. While you may have to give up some control, you also benefit from working with a system that already works. You’ll be able to learn from an experienced franchisor and avoid the challenges of building a business from the ground up.
So, is becoming a franchise owner the right way for you to start a business?
Here’s how you can choose and start a franchise that matches your interests.
What Is a Franchise?
A franchise is a business that’s run by an individual (franchisee) but uses the brand and support of a larger company (franchisor). Some well-known examples are Subway, 7-Eleven, and Hilton Hotels.
When you buy a franchise, you get the right to use a tested business plan, pricing, products, and marketing methods. You also get access to the company’s logos, slogans, and other branded materials, which help you build your own branch of the business.
How to Start a Franchise
Even though a franchise saves you from creating a business idea from scratch, there are still several important steps to take—many of which are similar to starting any other business.
1. Understand Your Budget
Every franchise comes with an upfront fee. Franchisors may also require that you meet certain financial conditions. For example, some might want you to have a specific net worth.
Review your finances to find out what you can afford. Then decide how you’ll fund your franchise. You can use personal savings, apply for a bank loan, or see if the franchisor offers financing.
2. Do Your Research
You need to make sure the franchise you’re interested in fits your situation. Reading the fine print is important.
For example, Cafe Yumm requires a net worth of $500,000. If you don’t meet that, you’ll need to look for other options.
Try to speak with a current franchisee. Ask about what they like and dislike, what the work is like, and what the major costs are. Also, check if the franchise is already operating in your area. Franchisors often avoid placing two locations too close to each other.
3. Join the Franchise Interview Process
Getting a franchise isn’t like starting a business completely on your own. You’ll usually go through an interview process, which is like applying for a job.
The format may vary, but the goal is the same—for you and the franchisor to decide if it’s a good match. Use this time to ask about the training, support, and other setup help the franchisor provides.
4. Write a Business Plan
Even though you’re following a proven model, you still need a solid business plan. It should explain how you will run your location, estimate your sales and costs, and outline your staffing needs.
You’ll also need a market analysis. This helps show how your franchise will fit in your area. At the very least, explain who your customers will be and how they may be different from those in other locations. Many franchisors offer help with this part.
5. Choose a Good Location
Your location matters a lot—and it may be subject to rules from the franchisor. Things like size, layout, and nearby businesses can all affect your choices.
You’ll also need to think about how the location affects your chances of success.
- Will it bring in the right type of customers?
- Is there enough foot traffic?
- Can people get to your business easily?
In many cases, the franchisor will help with choosing a location. If not, you can find resources that explain how to pick a good business spot.
6. Review the FDD and Sign the Agreement
Before you sign any contracts, you’ll be given a Franchise Disclosure Document (FDD). This is a key document that lays out all the details about the franchise and what you’re agreeing to.
The FDD includes:
- Franchisor’s background: Includes the company’s history, business experience, and any past legal or financial issues.
- Financial statements: Shows the financial health of the company.
- Costs: Lists the startup fee, training costs, ongoing fees, and other expenses.
- Training and support: Outlines what help the franchisor offers.
- Franchisee duties: What you’re expected to do, like buying equipment or following standards.
- Territory: Details whether you’ll have an exclusive area and what that means.
- Trademarks: Covers the use of company logos, slogans, and other brand materials.
- Renewal and termination rules: Explains how you can renew, end, or transfer the franchise.
- Franchisee list: Gives contact details for current and former franchisees.
- Earnings information: If available, shows how other locations have performed.
- Restrictions: Lists what you can and can’t sell and how you must run the business.
Review this document carefully, and consider getting legal advice before signing.
7. Handle Legal and Setup Requirements
Besides the franchise agreement, you’ll need to meet legal requirements to start your business.
These may include:
- Business structure: Some franchisors may require a specific legal setup.
- Registrations: You’ll need federal and state tax IDs.
- Licenses and permits: Depending on your location, you may need different local, state, or federal licenses.
- Taxes: You must register for the proper tax IDs and follow tax rules.
- Insurance: Most franchisors will require certain insurance, like property, liability, or workers’ compensation.
8. Stay Updated on Franchisor Changes
Most franchisors give new owners training programs that cover how to run the business. But the business world changes, and so can company rules, promotions, and products.
Keeping up with these changes helps you stay in line with the brand and can affect how well your business does.
Types of Franchises
Franchises exist in nearly every industry. While there are thousands of individual concepts, they generally fall into these groups:
Food and Beverage
Businesses that serve food and drinks, either quickly or with full table service.
Examples: McDonald’s, Subway, Dunkin’, Baskin-Robbins
Retail
Shops that sell physical goods to customers.
Examples: 7-Eleven, GNC, The UPS Store
Services
Franchises offering specialized services for homes, cars, fitness, or learning.
Examples: Molly Maid, Jiffy Lube, Anytime Fitness, Kumon
Business-to-Business (B2B)
Companies that offer services to help other businesses.
Examples: Minuteman Press, ActionCOACH, Jan-Pro
Real Estate
Franchises that deal with buying, selling, or renting properties.
Examples: RE/MAX, Century 21, Coldwell Banker
Lodging
Hotels or motels that offer short-term stays.
Examples: Hilton Hotels, Marriott, Holiday Inn
Personal Care
Places offering grooming, beauty, or wellness services.
Examples: Great Clips, Supercuts, Massage Envy
Recreation
Businesses focused on fun and fitness.
Examples: Chuck E. Cheese’s, Planet Fitness, Club Pilates
Specialty
Franchises in unique areas or for specific needs.
Examples: Petland, Dogtopia, SERVPRO
How to Choose the Right Franchise
With more than 3,000 franchise concepts to choose from, picking the right one can feel overwhelming. Here are three ways to narrow it down:
1. Know What You’re Good At
Even if you’re not creating a business from scratch, you should still start by identifying your own strengths, skills, and interests.
Are you good at managing people? Do you enjoy working directly with customers? Have you worked with franchises before?
If you’re unsure, try doing a personal SWOT analysis to think through your strengths, weaknesses, opportunities, and threats.
2. Match Your Skills to the Franchise
Once you know your strengths, use them to guide your search. Franchisors want to know if you can run their business well.
For example, if you have sales experience, a B2B franchise like commercial cleaning might be a good fit.
3. Watch Market Trends
Pay attention to what’s happening in the market. Are people spending more or less in certain industries? Is the franchise you’re looking at gaining or losing popularity?
Just because a franchise is trending doesn’t mean it’s a good long-term bet. Always research customer behavior and market demand before making a decision.
Start Your Franchise Journey
You don’t have to build something completely new to become a business owner. Many people find success by following an existing business model that works.
If you’re thinking about starting a franchise, take time to learn everything you can before you begin. With careful planning and effort, your franchise can be just as successful and fulfilling as any other kind of business.
Check out our full guide to starting a business to make sure you’re fully ready to open your own franchise.
